Month: October 2019

Inspector General Michael Horowitz – tasked with investigating and exposing wrongdoing at the highest levels – is feared by some to be pulling punches in order to protect establishment darlings, according to RealClear Investigations‘ Paul Sperry.  

Of note, Horowitz “volunteered on the political campaigns of several Democrats while in college and later donated to the campaign of Colorado Sen. Michael Bennet, a former colleague who is seeking the 2020 Democratic presidential nomination – and who has slammed Trump’s praise of Russian President Vladimir Putin,” according to Sperry. 

Horowitz is also married to a former Democratic political activist, Obama donor Alexandra Kauffman Horowitz, who helped run campaigns for liberal Democrats before producing content for CNN‘s Washington bureau. 

While acknowledging that Horowitz is widely respected, these critics say his work has long been hampered by biases, conflicts and a tendency to play favorites, as in past probes of former FBI Director James Comey, whom Horowitz worked under in New York.

Their main complaint is that he pulls his punches.

Horowitz’s investigation of the FBI’s handling of the Hillary Clinton email case, for example, concluded that many of Comey’s explanations for his dubious actions were “unconvincing,” while stopping short of saying that Comey lied to investigators. Comey asserted implausibly that he delayed acting on a mountain of new Clinton email evidence discovered on a laptop in New York because he was never briefed about it until nearly a month after his top aides found out about it in September 2016.

In probing whether Comey illegally leaked classified information to the New York Times, Horowitz in the end accepted his argument that the memo of a conversation with President Trump was sensitive but “not classified” – even though the memo contained information about the FBI’s ongoing counterintelligence investigation of the president’s national security adviser. –RealClear Investigations

“I see a pattern of him pulling up short and trying to be a bit of a statesman instead of making the hard calls,” 24-year FBI veteran Chris Swecker – who served as assistant director of its criminal investigative division, told Sperry. “I’m afraid he’s going to do the same thing with the FISA report – a finding that sounds tough, but in the end, ‘No harm, no foul.’”

To wit, Horowitz hasn’t interviewed Carter Page, who the FBI targeted using alleged abuses of the Foreign Intelligence Surveillance Act (FISA). 

Although Horowitz says he conducted more than 100 interviews of witnesses, including Christopher Steele, who wrote the salacious and unverified anti-Trump dossier the FBI relied on to obtain the wiretap warrant, he failed to interview Page, the  target — and alleged victim — of the controversial warrant. Page confirmed to RealClearInvestigations that no investigator from Horowitz’s office asked him questions. 

That is not the first time Horowitz has failed to interview key subjects. With the help of seasoned federal investigators, RealClearInvestigations deconstructed previous probes by his office, combing through the footnotes and appendices of his reports. RCI found numerous instances in which Horowitz stopped short of pursuing evidence and was content to take high-level officials at their word, even in the face of conflicting evidence. –RealClear Investigations

Meanwhile, Horowitz gave former FBI Deputy Director Andrew McCabe special treatment – accepting his explanation for why he failed to recuse himself from the Clinton email case until November 2016, while also accepting McCabe’s claim that he had nothing to do with his wife’s Senate campaign, even though he: 

• personally met with her sponsor and fundraiser McAuliffe;
• drove her to campaign stops;
• attended one of her candidate debates;
• discussed the campaign with her on FBI equipment;
• appeared in a family photo used in a campaign mailer; and,
• posed with her wearing her official campaign T-shirt for a photo distributed on social media to promote her candidacy.

As Sperry notes, “Were such actions violations of the Hatch Act, a federal law that prohibits federal employees from engaging “in political activity in an official capacity at any time”? If so, the topic didn’t interest Horowitz, who accepted on face value the FBI’s argument in a letter to the Senate that he played no formal role in his wife’s campaign and that his activities were permissible under the law.”

Former inspectors general found this questionable, especially in the wake of a Justice Department memo issued in 2014, and again in early 2016, warning department and FBI employees to “be particularly mindful of these rules in an election year.” –RealClear Investigations

“Everybody and their mother knew he was engaged in political activities,” said former Pentagon IG General Joseph E. Schmitz. “Horowitz could have easily seen to it that he was branded unfit for office and banned from the federal payroll for up to five years.” 

Protecting Clinton, Strzok and Page

During his 17-month probe into the FBI’s investigation of Hillary Clinton’s emails, which he touted as “thorough” and “comprehensive,” Horowitz repeatedly declined to use his subpoena power – allowing key players to provide their own evidence.

He also allowed two lead FBI officials, Peter Strzok and Lisa Page, to sort through which of their electronic communications were “personal” vs. “work related” according to the report. 

Horowitz subsequently learned through interviews that Strzok drafted classified investigative documents and communicated with Page about them on their private email in violation of department rules, which require officials to communicate through government channels — the same basis for the Clinton email probe. Yet neither was compelled to turn over the emails.

“The inspector general and I arranged an agreement where I would go through my personal accounts and identify any material that was relevant to FBI business and turn it over,” Strzok said in testifying before Congress. “It was reviewed. There was none. My understanding is the inspector general was satisfied with that action.”

Horowitz never referred Strzok for criminal sanctions for maintaining court-sealed documents on an unsecure computer. Strzok was nonetheless fired last year by the bureau for misconduct. He is now suing the department for unlawful termination.

The IG also failed to demand access to Comey’s private Gmail account, even though he, too, used it for official FBI business. –RealClear Investigations

And while Horowitz is widely credited with having uncovered anti-Trump / pro-Clinton text messages between Strzok and Page while they were in the middle of investigating Trump and Clinton, he only ‘found’ them after pressure from congressional Republicans – and has apparently given up trying to find still-missing text messages blamed on a tech error. 

Horowitz did admonish Strzok and Page for their obvious “political bias,” however he concluded that their clear preference for Hillary Clinton and against Donald Trump did not influence their investigaions, and that they only exercised “extremely poor judgement” despite the fact that an August 2016 text from Strzok to Page strongly suggests they were actively working against Trump. 

“[Trump’s] not ever going to become president, right? Right?!” Page asked Strzok, to which he replied “No. No he won’t. We’ll stop it.”

In a report echoing the FBI’s determination that Hillary Clinton had been “extremely careless” but not “grossly negligent” in her use of email, Horowitz essentially cleared the FBI agents of fixing the case for Clinton while still acknowledging several irregularities in the email probe. For example, the FBI did not push for a grand jury to compel testimony and obtain the vast majority of evidence, choosing instead to offer unusually generous immunity deals to Clinton aides. Comey drafted a statement exonerating Clinton months before agents interviewed her. –RealClear Investigations

“Undeniably, there was bias against Trump [at headquarters],” according to former federal prosecutor Andrew McCarthy, adding “Clinton was not going to be charged no matter how much evidence there was.“

“The inspector general was wrong to conclude that this bias could not be deemed causative of any particular investigative decision in the Clinton emails case,” added McCarthy. 

Read the rest of the report here.

Then read Sperry’s report on how Horowitz cut the Clintons some major slack over the infamous ‘tarmac’ meeting here. 

Submitted by Cheng Xiaonong of The Epoch Times,

The back-and-forth tussle between the United States and China in the Sino–U.S. trade war has taken a new turn, with Beijing’s sudden offensive aimed at the American economy and causing a political fiasco for Trump that could affect next year’s U.S. presidential elections.

For the first time in history, a world economic power has taken the method of attacking the economy of another world power in order to alter the short-term domestic political prospects of that country. There is no longer any doubt that China and the United States are not engaged in a trade war, but in economic warfare.

And the goal is beyond the economic scope, pointing directly at the position at seat in the Oval office.

Targeting the American Economy

According to Duowei News, an overseas Chinese-language media with ties to Beijing, the Chinese Ministry of Finance announced Aug. 23 that it would impose tariffs on $75 billion worth of U.S. imports, to be implemented starting Sept. 1 and Dec. 15 respectively, and would resume import tariffs on U.S. auto parts that had been previously paused last December. Subsequently, starting in September, additional tariffs on U.S. soybeans would reach 30 percent, tariffs on seafood, fruit, and meat will rise to 35 percent; starting mid-December, U.S. grain and vehicles will also incur additional tariffs of 35 percent, which is the first time that Beijing has gone after American crude oil. A few hours later, Trump announced on Twitter that on Oct. 1, the United States would raise the existing tariffs on $250 billion of Chinese goods from 25 to 30 percent. At the same time, effective Sept. 1, tariffs on the other $300 billion of Chinese imports would rise from 10 to 15 percent.

From the above reports from the CCP’s mouthpieces, it’s clear that this time it is Beijing that has taken the initiative in adding tariffs on U.S. goods, and it is Trump who is on the defense. The CCP’s overseas media also admitted that in this sequence, Trump is counterattacking; in other words, Beijing is the aggressor. However, some overseas media reversed the chronological order of the events, thus misleading the audience into believing that the United States first added tariffs, and that the CCP reacted out of necessity. Therefore, it is crucial that the facts are clarified, but more importantly, since it is the Party that made the first move, it is necessary to analyze its motives and goals in depth. Moreover, the CCP’s move has caused a reversal in Sino–U.S. relations of the past decades, making an in-depth analysis of the origin and background of the event even more relevant.

In combating the United States, the Chinese Communist Party (CCP) has gone public with a strategy of “creating an enemy for itself”; on the strategic scene, it has escalated to economic confrontation.

A US Counterattack Is Precisely What Beijing Wants

Beijing’s initiative to increase tariffs seems to be a tactical response, but its purpose is very clear. Since China abandoned its sincerity in Sino–U.S. negotiations, this tactic carries the clear connotation of challenge. The U.S. economy is now the main target.

After the Chinese side suddenly overturned the negotiating table in early May and threw away the agreements it had made to 90 percent of the U.S. demands, the United States increased tariffs on China’s exports to the United States to exert pressure, while continuing to express its willingness to continue negotiations. Were the Chinese side willing to play along and go through the motions while stalling for time, its relationship with Washington would not be good, but neither would it be in its current state of rapid deterioration. However, Beijing no longer has that kind of patience. It has now assumed an offensive posture by suddenly taking the initiative to impose tariffs on American products.

In response to this sudden “offensive” by Beijing, Trump’s across-the-board tariff increase is an entirely predictable measure. After Beijing overturned the negotiation table in May, the United States lost the space for friendly consultation and settlement of problems. Although Trump is still arranging for communication between the two parties, it’s been reduced to little more than a formality. Now, Beijing has taken the initiative to exert pressure on the United States and completely prevent the export of U.S. goods to China, which blocks any possibility of the United States narrowing its long-term trade deficit of hundreds of billions of dollars with China. The United States can no longer expect cooperative intent from China in resolving the trade deficit between the two sides nor on issues such as intellectual property theft. The only option Trump has left to reduce the U.S. trade deficit with China is to comprehensively and substantially increase tariffs on Chinese goods.

Since then, the complete deterioration of U.S.–China economic and trade relations has all but become a foregone conclusion. In fact, this is also part of Beijing’s plan. The Beijing-run Global Times has stated that it is necessary to fight a war of attrition with the United States.

Duowei reported: “After the end of the first exchange of blows, the market is stained with blood. Besides skyrocketing gold prices, the U.S. stock index, the offshore RMB exchange rate, crude oil prices, and U.S. Treasury yields have all fallen sharply. Although the losses from the trade war for the two sides have reached a new peak… the possibility of a recession for the United States is gradually emerging.” This is China’s basic calculus in its current economic war with the United States.

Why Has Beijing Adopted a Lose-Lose Strategy?

In a little more than a year, Beijing’s attitude in the Sino–US trade and intellectual property negotiations has taken a 180-degree turn. It has gone from cooperative negotiation to torpedoing discussions, and then from passively responding to the pressure of the United States’ gradual tariff increases to actively increasing tariffs, to which the United States has countered with steep tariff increases.

Does Beijing’s motive for “pressing home the victory” come from its realizing the “inevitability” of America’s decline? Or is China instead trying to make the best of a bad situation by enduring short term pain for long term gains, such as forcing Trump out of office, that it hopes to reap by landing a heavy blow upon the U.S. economy?

Beijing has chosen to go for a scenario in which neither side can win. Why? By now it is apparent that the U.S. economy has remained prosperous while the Chinese economy is in a continuous downward spiral. Normal Sino–U.S. relations cannot drag the U.S. economy into an abyss, and China hardly has the means of “pressing home a victory.”

Does Beijing intend to stop before things go too far? If the Chinese regime wanted to save China’s economy, the most sensible step would be to put up a face of cooperation with the United States, rather than taking such a confrontational, lose-lose stance. However, the Chinese are not doing this; on the contrary, it has embarked on the path of strategic confrontation with the United States, and its plans for economic war has the clear political goal of interfering with the U.S. presidential election. This strategy has now come to the fore, and Beijing has brought an end to the era of polite Sino–U.S. relations.

Who Suffers Most in the ‘Lose-Lose’ Scenario?

Since Beijing has adopted this strategy, what exactly does it want to achieve? Beijing’s actions will undoubtedly hurt the Chinese economy in the short term. For example, cheap agricultural products from the United States cannot be imported, so China will have to look to other means to get the necessary soybean and corn imports. However, the price of soybeans exported from Brazil to China has recently increased by 70 percent, and within them include soybeans imported to Brazil from the United States. This has not only allowed Brazil to take advantage and make easy money, but also greatly increased the prices of China’s vegetable oil and animal feed, exacerbating China’s rapidly rising meat and food prices.

Many people both in China and abroad previously thought that for the sake of citizens’ livelihoods, the Chinese authorities would not take the “lose-lose” approach. Now it turns out that the Chinese people’s concerns about the deterioration of Sino–US relations have not shaken the determination of authorities to do precisely that. The reason is just as I wrote in “Distinguishing True and False in the Winning and Losing of US–China Negotiations,” my July 20 article published in The Epoch Times: “People who silently endure economic pressure cannot change the policies of the authorities. This is the source of the CCP’s ‘resistance to economic pressure’.”

How the American people will react to the price hikes caused by the United States imposing tariffs on Chinese imports, as well as US stock market volatility and US corporate panic, remains to be seen. The United States will undoubtedly suffer some form of short-term pains from the dramatic restructuring of Sino–U.S. trade relations.
Broadly speaking, people in democracies usually have less of what the Chinese call the “big picture, overall” concept, as when their lives are affected, they can express themselves through the next presidential election. Beijing dares to put both itself and the United States through a period of short-term pain precisely because the “resistance to economic pressure” that U.S. leaders can muster is weaker than that of China’s authoritarians. Beijing’s hope is to use economic war to shake the hearts of the American people and bring about change in the White House.

The long term pains that China and the United States face involve a great number issues that I will explain in my follow-up article “Why the Sino–US Trade War Has Escalated Into an Economic War: A Second Analysis of the Reversal in Diplomatic Relations.”

The Strategic Shift

Knowing that U.S. politicians have a relatively low tolerance for “short term” pain, while the Chinese Communist Party’s totalitarian system can ignore it, Beijing has changed its strategy from “delay and wait for change” to “create change by going on the offensive.” While capable of shrugging off short-term pain, the CCP’s main dilemma is how to deal with the long term pain caused by foreign firms and investors leaving China. For this, it has few options and no clear solution.

What is clear is that, if the CCP were to continue the path of Trump’s marginal tariff increases, its original plan of “dragging things out” would only become an irritating “long term pain” that not only does little damage to Trump, but might even consolidate his chances of re-election. But by “creating change by going on the offensive,” the CCP can bring about a surge in short-term pain that can impact the United States insofar as it lands a blow on Trump’s economic achievements and by extension sway voter sentiment to Beijing’s benefit.

However, by choosing the “lose-lose” route, Beijing has fully revealed its enmity towards the United States, and the empty talk of “China–U.S. friendship” no longer works even as a formality. Trump himself has already begun to ask on Twitter whether or not China is an enemy—a status that the CCP is responsible for creating. Under such circumstances, it remains to be seen how American voters will react to this series of events: Will their resentment of Trump grow, or will the president gain more support for his China policy?

*  *  *

Dr. Cheng Xiaonong is a scholar of China’s politics and economy based in New Jersey. He is a graduate of Renmin University, where he obtained his master’s degree in economics, and Princeton University, where he obtained his doctorate in sociology. In China, Cheng was a policy researcher and aide to the former Party leader Zhao Ziyang, when Zhao was premier. Cheng has been a visiting scholar at the University of Gottingen and Princeton, and he served as chief editor of the journal Modern China Studies. His commentary and columns regularly appear in overseas Chinese media.

An upcoming book chronicling the relationship between Barack Obama and Joe Biden reveals that the ‘bromance’ the two grew to share during the White House years has fizzled in the post-White House years, according to “Barack and Joe: The Making of an Extraordinary Partnership.” 

Written by the Washington Post‘s nonfiction editor, Steven Levingston, Barack and Joe sheds light on trials and tribulations between the two very different politicians, which may explain Obama’s refusal to endorse Biden’s 2020 bid for the White House, according to the Daily Mail. 

The obvious answer is that Obama worked with the guy for eight years and knows he’s a gaffe-prone, gropey, hair-sniffing racist with political baggage – but feel free to continue reading. 

Happy 55th, Barack! A brother to me, a best friend forever. pic.twitter.com/uNsxouTKOO

— VP Biden (Archived) (@VP44) August 4, 2016

While the two men did develop a strong affection for one another,  there were times Biden drove Obama over the edge as the book reveals a younger Obama once rolled his eyes at Biden’s constant babbling, sending a note to his adviser saying: ‘Shoot. Me. Now.’ 

And it was a political embarrassment for Biden when Obama failed to step up and support his former vice president in both the 2016 and 2020 presidential races. –Daily Mail

In 2016, Joe was passed over in favor of Hillary Clinton – as Obama was reportedly more concerned about what a GOP victory would mean for his doomed health care program, among other things. 

“Joe, despite his many virtues, was just another white guy, one in a long line of American presidents — hardly the symbol of the Teutonic change that Obama hoped would mark his place in the history books,” writes Levingston. 

“Barack had placed his bet on Hillary, the one he believed would confirm his revolutionary stamp on American’s political culture – the first black president passing the baton to the first woman president.” 

As far as the 2020 election, Obama said in January 2019 that Democratic party leadership needed “new blood.” 

Biden, meanwhile, said he doesn’t want Obama’s endorsement – stating that “Whoever wins the nomination should win it on their own merits,” after Obama declined to support him. 

That said, Obama has met with other potential presidential candidates, including Texas Congressman Beto O’Rourke, prior to Biden’s decision to run. 

What had been an unprecedented closeness between a president and vice president had changed.

‘Now they were two high profile politicians considering their own futures‘ — and no longer brothers in arms they once were.

In the beginning, ‘from a gaffe-meister, Biden had shaped himself into a conscientious, well informed partner to the president emerging as the heart to Obama’s brain’, write the authors.

Biden always had his eye on the Oval Office and made a promise to his son, Beau, when he was dying of brain cancer in 2015, that he would try for a third run for the presidency despite his lousy track record. –Daily Mail

The rest of the Daily Mail‘s article – along with Levingston’s book – rattles off Obama and Biden’s on-again / off-again trials and tribulations, such as the time Biden said of Obama “I mean you got the first sort of mainstream African American who is articulate and bright and clean and a nice-looking guy,” to which Obama noted that there had been prior black presidential candidates – all of whom were (arguably) articulate – Jesse Jackson, Shirley Chisholm and Al Sharpton.  

When Obama picked Biden as his running mate, he said “I love this guy and he’s got heart.” 

Now, Biden has nothing but problems – and there’s no sign of Obama’s aforementioned love for him.

Authored by Jan Jekielek via The Epoch Times,

What are the major vulnerabilities of the Chinese communist economic system?

Can we believe the financial numbers coming out of China?

Why is the Chinese economy so dependent on US dollars?

And what are the broader implications of this?

And how do Hong Kong, and the Hong Kong protests, fit into China’s economic and political future?

Today we sit down with Kyle Bass, the Founder and Chief Investment Officer of the Hayman Capital Management hedge fund, and a founding member of the Committee on the Present Danger: China.

We discuss the implications of China’s massive credit-to-GDP ratio, communist China’s non-performing loans and culture of bribery, the role of Wall Street in the US-China trade relationship, and Kyle Bass’s thoughts on the future.

*  *  *

American Thought Leaders is a new Epoch Times show available on Facebook and YouTube.

 

Underscoring the hit to domestic demand, as the economy grapples with collapsing exports, for the first time ever (data back to 1966), South Korean consumer prices “fell” year-over-year in September.

The benchmark consumer-price index fell 0.4% in September from a year earlier after being flat in August – already the slowest pace on record in the country. The latest reading missed the median market forecast of a 0.3% decrease.

Source: Bloomberg

Zooming in makes it even clearer that 2019’s sudden shift to global easing has not helped… at all!

Source: Bloomberg

Negative inflation is likely to add fuel to a growing debate over whether the risk of deflation is imminent in South Korea and what policy action needs to be taken, which is ironic since BOK Governor Lee last week dismissed concerns of deflation as “excessive.”

Obviously, subdued inflation – alongside declining exports amid continued global trade tensions – has been stoking concerns about a possible recession, adding pressure on the central bank to ease policy further to support growth.

The Bank of Korea in July cut interest rates for the first time in three years, lowering its 2019 growth and inflation forecasts to 2.2% and 0.7%, respectively, from its earlier estimates of 2.5% and 1.1%.

Trade data also notably disappointed tonight with both exports and imports tumbling more than expected…

Source: Bloomberg

The Finance Ministry was quick to dampen any concerns that this price deflation is actually deflation by issuing a statement that confirmed “South Korea is not facing deflation,” stealing a page from The Fed’s playbook by claiming that the dip in inflation is “temporary,” pointing out through their crystal ball that CPI “will likely rise above 1% after next year.”

Via Global Macro Monitor,

America’s Perilous Path Of Wealth Distribution

Summary

• We illustrate the stark contrast in the growth of household wealth between the different percentile groups since Q1 2000

• The top 1% of households now hold more wealth than the bottom 90%

• The aggregate nominal wealth of the bottom 50% of households has fallen by almost 10 percent since 2000, from 3.4 percent of total household wealth to just 1.3 percent

• The share of the top 1% is now over 31 percent and has grown by over 165 percent since Q1 2000

• The average wealth per household of the bottom 50% has declined 25 percent in nominal terms and 50 percent in real purchasing power compared to the 1%’s increase of 118 percent and 50 percent, respectively

• The widening wealth gap is a major factor in the rise of populism in the U.S. and the debate over a wealth tax will be a central focus of the 2020 presidential election

• Asset inflation resulting from quantitative easing (QE) has contributed to the widening wealth gap

• Long pitchforks and water cannons

Wealth Tax Talk

We hear a lot these days about wealth taxes.   A new wealth tax on the upper echelons of the top 1% of wealthiest households will likely be at the center of the 2020 presidential campaign.

This kind of rhetoric and these ideas just don’t happen in a vacuum and are gaining political momentum.  Our analysis will illustrate how it is based and moored in the two-decade-long change in the country’s distribution of wealth.

The prediction markets now give Elizabeth Warren a 50 percent probability of winning the Democratic nomination compared to only 21 percent for Joe Biden.

Here is a little snippet of Elizabeth Warren’s plan for a wealth tax from her campaign website.

 ..an Ultra-Millionaire Tax on America’s 75,000 richest families to produce trillions that can be used to build an economy that works for everyone — elizabethwarren.com

During the next week, we will present a series of posts analyzing wealth distribution in the United States, which seems to have reached a political tipping point.  The top 1% of American households now have more wealth than the bottom 90% compared to 79 percent of the bottom 90% in Q1 2000.

In this post, we briefly present some data and charts on the growing wealth inequality between the top 1% and the bottom 50% of U.S. households.

Changes In Wealth For Average Household 

Just a few caveats before looking at the following charts.

First, see our post, Be Skeptics Of Macro Data In The Two-Speed Economy, warning about looking at averages when data distributions are so skewed.   This is illustrated in the bible of wealth distribution, the Fed’s Survey of Consumer Finances (SCF),  

Note the significant differences between the average and median data points,  which is the result of the top-heavy distribution of wealth in the U.S. where 70 percent of household wealth is now held by the top 10%,  pulling up and distorting the average.

Second,  our estimate of the number of households, which we have sourced from the Census Bureau and extrapolated for the current year.  There is an ongoing debate about what constitutes a household and a family.   Nevertheless, we are very confident our estimates in the following two charts are very good and close approximations of the data that will be eventually published in the next SCF, which should be out in a year or two.

The Raw Data

The following table illustrates the aggregate wealth data from the Fed’s new Distributional Financial Accounts (DFA).  Note we use the terms “wealth” and “net worth” interchangeably.

Though the DFA time series begins in 1989, we use Q1 2000 as our base year not only because it represents the beginning of the new Millenium but it was also the quarter of peak aggregate nominal wealth for the bottom 50% of households.

Key Takeaway

The most stunning takeaway, at least for us, from the table is that the nominal aggregate wealth of the bottom 50% has declined, underscore fallen in nominal terms, over the past 19 years.   That is almost a 10 percent decline while, at the same time, the wealth of the top 1% has increased by 166 percent.   The share of the total household wealth of the bottom 50% has dropped from a mere 3.4 percent in 2000 to 1.3 percent in Q1 2019.

The aggregate wealth of the top 1% relative to the bottom 50% has increased from a factor of 8.5 to 24.6 from Q1 2000 to Q1 2019.  Stunning and politically dangerous.

The data are even starker when taking into account that household formation has grown by over 20 percent since the beginning of 2000.

Real Average Wealth/Net Worth Per Household

Go no further to understand America’s rising populism and growing political conflict than the above two charts.  It also illustrates the country’s two-speed economy and the sharp contrast of the economic well being of the top percentile groups and the bottom 50% of U.S. households.

Real-World Example Of Wealth Decimation

It is hard to comprehend the decimation in purchasing power of the wealth of the average household on the other side of middle from 2000 to 2019 but let us help with a simple real-life example.

In 2000, the average wealth per household of the bottom 50%, assuming a family of four, could purchase 163 day passes at Disneyland.  In 2019, however, given the decline in nominal wealth and the increase in Disneyland ticket prices, which have outpaced core CPI by more than 5x, fell to just 36 days.

Official Inflation Data Flawed

Just an aside, the relative increase in Disney tickets illustrates why we are so skeptical of and think the official inflation data calculated by the government underestimates real-world price increases, which are what truly matter with respect to a consumer’s real purchasing power.

Yes, we do understand relative price changes and that Samsung large screen televisions are much less expensive than they were in 2000.

Another Data Caveat 

One should not make the mistake of viewing the above comparisons as a panel study.  That is there is no doubt that some households were in the bottom 50% in 2000 are now in the top 1%, and vice versa.

In addition,  the data are averaged with a range from a deeply negative net worth for the lowest percentiles of the bottom 50% to around $100k of the top percentile of the bottom 50%.   Ditto for the top 1% where a few of the highest percentile households hold over $100 billion in wealth and the lowest of the top 1%, i.e., the 99th percentile of all U.S. households, is just over $10 million.

Keep that in perspective, folks, during your meditation on the data.

Why The Wealth Divergence?

One, or the major factor of the wealth divergence is that the returns earned on assets such as stocks, bonds, and equity in private businesses have greatly exceeded the growth of wages, which have been nothing short been dismal over the past 20 years.  The several rounds of quantitative easing (QE) and the subsequent asset inflation have greatly contributed to the problem, increasing the support for some kind of a People’s QE.

We also illustrated in an earlier post how debt-laden the bottom 50% is relative to other percentile groups.

Upshot

So, there you have it, folks.

It doesn’t take a Ph.D. economist or political scientist to understand what, we believe, is the biggest problem in today’s political economy.  Just contemplate and study the few charts and data points above.

It will certainly be one of the main drivers of the 2020 presidential election and the winner will most likely be the candidate who convinces the majority of the electoral college or voters in the swing states, that he/she can best fix the problem or, more darker, is better at exploiting the rage against it.  Yikes!

Either way, we suspect the 2020 campaign will be very ugly.

The concept of fairness in the distribution of resources is not just political but the literature increasingly shows is more innate.   The perception of fairness also triggers more cooperation and helps an economy and society become more efficient  and run more smoothly.

See our June post, The Innate Angst Of Inequality, or take a few minutes to view the video in the Appendix at the bottom of this post.

Can Markets Handle A Hard-Left Turn?

We are not so sure asset markets can handle and sustain a hard-left political turn.  We are fairly certain, however, the current trajectory of the distribution of household wealth is not politically sustainable.

We are hoping for new policies that focus more on equitable growth, pulling the lower middle and bottom 50% of households up to close the wealth gap rather a radical redistribution of wealth program.  The quickest but ugliest path to close the wealth gap is for both public and private equity markets to take, say, a 50 percent hit, which will end up hurting the most vulnerable.

I recall a conversation with one of my lefty political science professors during the dot.com crash.  I asked if he was happy that the wealth gap between the richest man in the world at the time, Bill Gates, and the poorest person (maybe it was me) was cut in half with the crash of the Nasdaq.  He responded, “no, let’s not do it that way.”  Good for him.

Wealth Tax As An Investment In Social Stability

Nevertheless, some sort of redistribution of wealth from the uber-wealthy is inevitable, in our opinion.  After all, the top of the top 1% have taken down an extraordinarily disproportionate share of the increase in total household wealth since 2000.  They should view some sort of a wealth tax as an investment in the country’s social infrastructure and political stability in order to protect the totality of their asset holdings.

Whatever the scenario, the markets are vulnerable and to extract ourselves from this mess it is going to take some very effective and competent leadership with lots of nuance and finesse. ‘Apollo 13‘-like leadership and finesse.

…to return the [Apollo 13] astronauts safely, a new return trajectory had to be calculated and that is where his education in physics, as well as his experience at NASA, came into play. Calculating that return trajectory was like threading a needle from 70 feet away, he said. “We had to be accurate.”

“Apollo 13 was a test of real leadership and how we took a potential tragedy and turned it into a success,” he said. “All of us had a conviction to ride Apollo 13 to the end. We never thought we couldn’t do it.’ — Cherokee Phoenix

Stay tuned for more data posts.

Long pitchforks and water cannons, for now.

Bolton took President Trump’s “bromance diplomacy” to task on North Korea at an event at the DC think tank Center for Strategic and International Studies on Monday, after a reporter asked him point blank about the “warm letters” exchanged between the two leaders. The AP reports of his comments:

Asked during the question-and-answer session if “bromance diplomacy” is effective — a reference to the warm letters that Trump has exchanged with Kim — Bolton declined to comment. There is, though, “no basis” to trust any statements from the North Koreans.

“This is a government that has essentially violated every international agreement it has ever made,” he said.

Without naming the president directly, the recently oustered Bolton generally rebuked Trump’s policy toward Pyongyang, after he has met with Kim Jong Un a total of three times, including at a historic DMZ summit on June 30, at which time then national security adviser Bolton happened to be in sent to Mongolia.

“Every day that goes by makes North Korea a more dangerous country,” Bolton said. “You don’t like their behavior today, what do you think it will be when they have nuclear weapons that can be delivered to American cities?”

“Under current circumstances, he will never give up nuclear weapons voluntarily,” Bolton said at the think tank hosted conference, referencing Kim. Bolton further said he expects a bad ending to the current dubious US track and strategy. 

“If you believe, and you may not, that it is unacceptable for North Korea to have nuclear weapons at some point military force has to be an option,” Bolton said in his characteristically hawkish and bellicose tone. 

Trump for his part had previously described Bolton’s view’s as hurting progress on Korea “very badly” and that  “maybe a new method would be very good.”

Earlier this month Bolton was reported to have ripped Trump’s policies in a more direct way at a closed-door event, where his criticisms focused on Iran. Bolton explained to a luncheon hosted by the conservative Gatestone Institute “everybody in the White House had agreed on a retaliatory strike” on Iran in the wake of the Sept. 19 Saudi Aramco attacks. 

But as the former national security explained sarcastically, “a high authority, at the very last minute,” without telling anyone, decided not to do it and intervened to dissuade Trump. That “high authority” was identified as the increasingly vocally anti-interventionist FOX pundit Tucker Carlson.